Ryan Boot Company Analysis.

Problem:

A. Analyze Ryan Boot Company, using ratio analysis. Compute the ratios.

B. In your analysis, calculate the overall break-even point in sales dollars and the cash break-even point.

Ryan Boot CompanyAnalysis Ratios
  Ryan BootIndustry
Profit margin$292,500 ÷ 7,000,0004.18%5.75%
Return on assets$292,500 ÷ 8,130,0003.60%6.90%
Return on equity$292,500 ÷ 2,880,00010.16%9.20x
Receivables turnover$7,000,000 ÷ 3,000,0002.33x4.35x
Inventory turnover$7,000,000 ÷ 1,000,0007.00x6.50x
Fixed asset turnover$7,000,000 ÷ 4,000,0001.75x1.85x
Total asset turnover$7,000,000 ÷ 8,130,0000.86x1.20x
Current ratio$4,130,000 ÷ 2,750,0001.50x1.45x
Quick ratio$3,130,000 ÷ 2,750,0001.14x1.10x
Debt to total assets$5,250,000 ÷ 8,130,00064.58%25.05%
Interest coverage$700,000 ÷ 250,0002.80x5.35x
Fixed charge coverage($700,000 + $200,000)/$250,000 + $200,000 + ($65,000/ (1-.35)  = $900,000/$550,0001.64x4.62x

Answer:

B. BEP in sales dollars

First we must calculate the contribution margin.

CM = Sales – Variable expenses

CM = $7,000,000 – 4,200,000

CM = $2,800,000

Contribution Margin Ratio = CM ÷ Sales

CMR = $2,800,000 ÷ 7,000,000

CMR = 40%

BEP = Total Fixed Assets ÷ CMR

BEP = $2,100,000 ÷ 40%

BEP = $5,250,000 in sales dollars

Cash BEP = same as above accept the non cash expenses would be removed from the fixed assets per the instructor help.

Cash BEP = (TFA – Non Cash expenses) ÷ CMR

Cash BEP = ($2,100,000 – 500,000) ÷ 40%

Cash BEP = $1,600,000 ÷ 40%

Cash BEP = $4,000,000

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